We use cookies to customise content for your subscription and for analytics.If you continue to browse Lexology, we will assume that you are happy to receive all our cookies. For further information please read our Cookie Policy.

Philippines’ Renewables Programme

As renewables markets mature, renewables investors are looking to new markets for their next source of growth.

In this series of e-briefings, we summarise the opportunities and risks for international investors in the developing renewables markets of South East Asia. The renewables sector in South East Asia is nascent (with some notable exceptions). However, the commitments made by Asian countries at COP 21 indicate that renewables enjoys broad support throughout the region.

1. Market Readiness

1.1 Statutory Framework

The Philippines has been supporting its renewables sector since 1978, when it passed a law to regulate the development of its substantial geothermal reserves. Table 1 summarises the history of the key laws, plans and policies in the Philippines renewables sector.

Table 1: Legislative history of the Philippines renewables sector

Year

Law/Policy

1978

An Act to Promote the Exploration and Development of Geothermal Resources is passed

1991

Incentives to Mini-Hydro Electric Power Developers (101 kWe to 10 MWe) are released

2001

Electric Power Industry Reform Act (EPIRA) is passed

2003

Philippine Energy Plan is released

2007

Update of the Philippine Energy Plan 2005-2014

2008

An Act Promoting the Development, Utilization, and Commercialization of Renewable Energy Resources (the Renewable Energy Act) is passed

Guidelines for the Selection Process of Renewable Energy Projects Under Feed-In Tariff System and the Award of Certificate for Feed-In Tariff Eligibility are released

2014

Guidelines on the Collection of the Feed-in Tariff Allowance (FIT-All) and the Disbursement of the FIT-All Fund are released

Availment and Disbursement of Cash Incentive to RE Developers Operating in Missionary Areas is passed

2015

New Solar Feed-in-Tariff (FIT Rate) is released

Resolution on Setting the Installed Capacity per Grid and National Grid and Market share Limitations per Grid and the National Grid for 2015 is passed

A Resolution Adopting the Amended Rules to Govern the Interruptible Load Program (ILP) is passed

1.2 Key regulators

The key regulators in the Philippine renewables sector are the following:

• DOE

• Energy Regulatory Commission (ERC)

• National Power Corporation (NPC), which generates 72% of the total electricity generated in the Philippines

• National Transmission Corporation (TRANSCO), which controls the transmission assets and is responsible for linking power plants to the ‘Distribution Utilities’ (DUs) and electricity co-operatives (which in turn provide electricity to end-users)

• Power Sector Asset and Liabilities Management (PSALM), which owns TRANSCO and is overseeing the transfer of control of its transmission assets to private parties

The DOE and ERC will be particularly important regulators for foreign developers.
The DOE is generally mandated to prepare, integrate, coordinate, supervise and control all plans, programs, projects and activities in relation to energy exploration, development, utilization, distribution and conservation. Under the framework of EPIRA, the DOE is responsible for attracting private investment into the power sector and establishing the Wholesale Electricity Supply Market to promote competition and efficiency.

The ERC is generally mandated under EPIRA to promote competition, encourage market development, ensure customer choice and penalise the abuse of market power in the electricity industry. The ERC passes rules and regulations, including Competition Rules, imposes fines or penalties for any non-compliance with, or breach of, EPIRA, and acts as an independent regulatory body performing combined quasi-judicial, quasi-legislative and administrative functions in the electricity industry. It is responsible for issuing licenses to electricity suppliers and sets transmission, distribution and retail fees charged to end-users.

1.3 Historical Renewable Capacities
Since 2006, the average growth of renewables capacity in the Philippines has been around 13%. Total renewables capacity declined in 2011 slightly, mainly because of a decrease in geothermal capacity, which is the largest contributor to renewables in the country. Geothermal capacity constituted as much as 90% of the total renewables capacity in 2006, but that proportion decreased in succeeding years as Feed-in-Tariffs (FITs) for other renewables sources such as biomass, solar and wind were released, and so those technologies became more important to the power mix. Table 2 reflects the extent of renewables development in the Philippines from 2006 to 2014.

• there was no significant growth in the total installed capacity of renewables up to 2014

• the announcement of FITs through regulations in 2010 and 2012 provided a positive impact for wind and solar PV projects in 2014

• geothermal remains an important technology in the Philippines (the slight decrease in installed geothermal capacity in 2011 resulted from the decommissioning of more than 100 MWe geothermal power plants and the privatisation and rehabilitation of other power plants)

The first geothermal power plant was commissioned in 1979 with a 160 MWe installed capacity. Following a law passed in 1990, which allowed private entities, including foreign entities, to finance, construct, operate and maintain geothermal power plants for a defined period, most of the geothermal power plants are now privatized and geothermal exploration and development (together with the related risks) are carried out by the private sector.

• historically, hydro capacity grew slowly, until a large increase in 2014. The Philippine Government granted incentives to small and mini-hydro power developers (<10 MWe) in 1991

• biomass capacity grew significantly in 2012

Biomass power plants have been typically developed by the private sector. Many sugar mills in particular are now high efficiency plants with multi-fuel systems, and sell excess electricity to the grid.2. Support Mechanisms

2.1 Feed-in-Tariff

In order to accelerate the development of emerging renewables resources, the Philippines has passed a FIT scheme for wind, solar, ocean, run-of-river hydropower and biomass. The ERC, in consultation with the National Renewable Energy Board, adopted a resolution (no. 10 series 2012) approving the FIT rates. The FIT rate for solar was revised in April 2015 (resolution no. 6, series of 2015) and the FIT rate for wind was revised in October 2015 (resolution no.14, series of 2015). The current FIT rates and target installations are shown in Table 3.

Table 3. Current FIT Rates and target installations

Run-of-River Hydro

5.90

250

Biomass

6.63

250

Wind

8.53*

(with initial target of 200) 400**

Solar

8.69

(with initial target of 50) 500**

* The second FIT rate for wind energy was issued by the ERC at Php 7.40/kWh covering additional target of 200MW under ERC Resolution No. 14, series of 2015.

** Amended targets for wind energy and solar power up to March 15, 2016

Guidelines on the collection of FIT-All and Disbursement of the FIT-All Fund were published in February 2014. The Guidelines regulate the determination, collection, administration, and disbursements of the FIT-All Fund, and the roles of various stakeholders.

2.2 Other Financial Support

Financial institutions such as the Development Bank of the Philippines, Land Bank of the Philippines, Phil-Exim Bank and Government institutions may, in accordance with their respective charters or applicable laws, provide preferential financial packages for the development, utilization and commercialization of renewables projects recommended and endorsed by the DOE.

2.3 Technical Issues

The Philippine Grid Code was revised to establish the required minimum connection and operational requirements applicable to non-conventional or ‘Variable Renewable Energy Generators’ for integration into the Philippine Grid Code. The Grid Code sets the technical standards for wind and solar energy.

Part of ERC’s mandate is to promote free and fair competition in the generation and supply of electricity in order to achieve greater operational and economic efficiency and to ensure consumer protection. Further, in order to enhance the competitive operation of the markets, the ERC set the 2015 installed generation capacity per grid and market share limitations per grid, in each case as shown in Table 4.

Table 4. Installed capacity and market share limitations

Grid

Installed Generating Capacity (kW)

% Market Share Limitations as per RA 9136

Installed Generating Capacity Limit (kW)

Luzon

13,057,758.00

30%

3,917,327.40

Visayas

2,363,690.70

30%

709,107.21

Mindanao

2,163.718.16

30%

649,115.44

National

17,585,166.86

25%

4,396,291.71

3. Project Considerations

3.1 Consents and Permits

A variety of consents and permits are required to develop a renewables project in the Philippines.
A Renewable Energy One-Stop Shop within the DOE has been established to serve as the contact point to process applications for renewables service/operating contracts. The One-Stop Shop integrates renewables services from concerned Government agencies, integrates Web-based renewables systems infrastructure and databases and automates renewables applications. In addition, a web-based system platform called the Energy One-Shared System (or ‘EVOSS’) has been established to process service contracts issued by the DOE.

3.2 Competitive Bidding

The ERC requires all DUs to conduct a competitive selection process (CSP) in the procurement of their supply to the captive market (including off-grid projects for solar or wind for example). Any power supply agreement must be awarded to the winning generation company following a transparent and competitive selection process or as a result of a direct negotiation with the DU following at least two failed CSPs. A CSP will be successful if the DU receives at least two qualified bids from entities with which the DU is not prohibited from entering into a contract for power supply.

3.3 Tax and Other Incentives

Other incentives for renewables projects according to the Republic Act 9513 (RA 2008) are as follows:

Other incentives are available for mini-hydro (<10 MW) and geothermal projects.

4. General Investment Considerations

4.1 Foreign Ownership

The shareholdings of non-Philippine nationals in a Philippine company in the renewables sector are limited to not more than 40% of the outstanding voting stock.

4.2 Selling or Pledging Shares

It is possible for shares in Philippine companies to be sold and pledged, however, foreign ownership restrictions will apply.

4.3 Availability of Debt Finance

The Philippine banking market is currently very liquid and there are a large number of both local financial institutions who lend in pesos and foreign financial institutions who lend in US dollars, active in the Philippines energy sector.

Eversheds would like to thank International Finance Corporation for their contribution towards the e-briefing.

Compare jurisdictions: Patents

“I find the newsfeeds to be extremely helpful and relevant to my practice area and to the issues facing my company. As I am extremely happy with the newsfeed (it is one of the best I receive) I have no suggestions at this time for improvement.”